Economists wonder: Rosy Scenario makes a comeback?

[DEDixon 39]

Economists wonder: Rosy Scenario makes a comeback?

By MARTIN CRUTSINGER, AP Economics Writer

Thursday, February 26, 2009

President Barack Obama unveiled a multi-trillion-dollar s...

(02-26) 14:41 PST WASHINGTON (AP) --

The Obama administration's outlook has private economists wondering: Has Rosy Scenario made a comeback?

President Barack Obama's first budget is based on economic assumptions that are significantly higher than the forecasts of many private economists which could make it harder to reach his goal of cutting the deficit in half by the end of his first term.

The administration insisted that it wasn't relying on overly optimistic assumptions to make the spending and deficit figures look better, but private economists said the economic predictions underlying the budget Obama released Thursday were far higher than their own forecasts.

"These numbers are a lot more optimistic than what I am forecasting both for this year and in the long run," said David Wyss, chief economist at Standard & Poor's in New York.

The administration's strong growth numbers would make it easier to achieve Obama's goal of cutting the inherited deficit in half by 2013.

The administration predicted that the overall economy, as measured by the gross domestic product, will shrink by 1.2 percent this year but will grow by a solid 3.2 percent in 2010. That growth would be followed by even stronger increases of 4 percent in 2011, 4.6 percent in 2012 and 4.2 percent in 2013.

By contrast, the consensus of forecasters surveyed by Blue Chip Economic Indicators in February predicted that the GDP will fall by a larger 1.9 percent this year and then increase at weaker rates of 2.1 percent in 2010, 2.9 percent in 2011 and 2012 and 2.8 percent in 2013.

Nariman Behravesh, chief economist at IHS Global Insight, a major private forecasting firm, called the administration's forecasts "way too optimistic" and said it could represent a return to the overly optimistic forecasts of previous administrations confronted by surging budget deficits.

"They used to joke during the Reagan years that the highest ranking woman in the administration was Rosy Scenario," he said. "We may be seeing a return of Rosy Scenario."

Behravesh said his own forecast was that GDP was likely to post a bigger decline this year of possibly as much as 3 percent and then weaker growth of around 2 percent in 2010 and 2.5 percent in 2011.

That conforms with expectations of many other private analysts who believe that the current recession and rebound will be more U-shaped than V-shaped, reflecting a downturn that will last for a period with only a gradual recovery.

Christina Romer, the head of the president's Council of Economic Advisers, defended the administration's stronger GDP forecast, contending that in previous severe recessions, the pattern often showed a stronger rebound once the downturn is over. She cited the Great Depression as one such episode when the economy rebounded by strong rates after years of sizable declines.

She also suggested that many private forecasters may not be adequately taking account of the size of the government support that has been put forward, including the $787 billion economic stimulus bill, the $700 billion financial rescue package which the new budget suggests may be doubled if necessary and the administration's mortgage mitigation effort.

"If there is ever a time when we think policy is going to contribute ... now is the time," she said.

But private forecasters said even taking into account the government's efforts, they still believed the recovery from the current downturn was likely to be more modest than the administration is predicting, given the significant headwinds facing the economy, including the worst financial crisis in seven decades. They predicted a U-shaped recovery instead of a V-shaped recovery.

Mark Zandi, chief economist at Moody's Economy.com, said he believed the extent of the downturn will be more severe than the administration's forecast for this year and that this will prompt even larger policy responses on the part of the government, including increased help for homeowners facing foreclosure and another stimulus from Congress a year from now.

"I think this will be a bathtub recovery in which the economy won't get back to a self-sustaining expansion until 2011," Zandi said. "We will need even more policy efforts."

Weaker growth would have a major impact on the administration's deficit forecasts because it would mean higher spending by the government on such programs as unemployment benefits and food stamps and weaker revenue collections.

The administration's budget projects that the downturn will result in a 13.4 percent drop in government receipts this year, one of the contributing factors to the administration's forecast that the deficit will hit an all-time high of $1.75 trillion.

For 2010, when the administration is forecasting the deficit will decline to $1.17 trillion, the administration is forecasting that the rebounding economy will boost revenues by 8.9 percent. Based on the stronger growth, the administration is forecasting steadily declining deficits in coming years with the deficit dropping to $912 billion in 2011, $581 billion in 2012 and $533 billion in 2013.

[DEDixon 39]

Rosy scenarios - this is what gets California in trouble. The Democrats constantly predicting rosy revenue figures and spending based on them. This is why with or without Prop 13, California will always be in the red. Even if they did get higher property taxes, they would spend on predictions that are very baseless (rosy). Prop 13's demise is not California's budget savior. Gov't forecasting.... what a joke. Actually, maybe the Gov't should be required to use private forecasts?

So keep Prop 13 so the widows can afford to live in peace and harmony!

[Jasman0717 9]

Didn't Clinton recommend he paint a rosier picture

[one...two...tree 2,762]

Rosy scenarios - this is what gets California in trouble. The Democrats constantly predicting rosy revenue figures and spending based on them. This is why with or without Prop 13, California will always be in the red. Even if they did get higher property taxes, they would spend on predictions that are very baseless (rosy). Prop 13's demise is not California's budget savior. Gov't forecasting.... what a joke. Actually, maybe the Gov't should be required to use private forecasts?

So keep Prop 13 so the widows can afford to live in peace and harmony!

Ahem...it was the rosy forecast of the Bush Administration that not only went on a spending spree, but cut taxes on the wealthy...which got us where we are today.

The reality is - forecasting is unavoidable....which is why budget proposals are constantly revised as costs also inevitably go up. Why is that concept so difficult for the hardliner Republicans to understand?

[DEDixon 39]

Ahem...it was the rosy forecast of the Bush Administration that not only went on a spending spree, but cut taxes on the wealthy...which got us where we are today.

The reality is - forecasting is unavoidable....which is why budget proposals are constantly revised as costs also inevitably go up. Why is that concept so difficult for the hardliner Republicans to understand?

I agree that forecasting is unavoidable, but I don't think Gov't should be budgeting on their own forecasting. A honest forecast can't be achieved by Gov't.

About the Bush admin... you were not aware of the back room deal between Bush and the Dems? They didn't tell you? The deal was this: The Dems barked aloud about war spending to satisfy the left, but all at the same time they told Bush he could get whatever he wanted for the war as long as they could also get what they wanted. The deal was sealed! Remembering back, I can't remember the Dems complaining very much about the budget during the Bush years. I just remember some saying that he never vetoed a budget.... hmmm, wonder why? Would it be about the deal?

The Dems took control of Congress over 2 years ago claiming they would end the war in Iraq basically by holding back the dollars. They didn't do anything at all to curb war spending or to end the war. They lied to get elected.... no surprise there.

Where we are today... why we are where we are today.... that pebble starting growing long before Bush was in office. He should have stopped it, the Dems should have spoke up for him to stop it, but everyone looked the other way. Show me where any Dem spoke out on the issue of housing, show me where they spoke out as a group. No one wanted to end the American shopping spree for if they did and the economy tumbled, people start looking at their elected officials more critically.

[Jasman0717 9]

Rosy scenarios - this is what gets California in trouble. The Democrats constantly predicting rosy revenue figures and spending based on them. This is why with or without Prop 13, California will always be in the red. Even if they did get higher property taxes, they would spend on predictions that are very baseless (rosy). Prop 13's demise is not California's budget savior. Gov't forecasting.... what a joke. Actually, maybe the Gov't should be required to use private forecasts?

So keep Prop 13 so the widows can afford to live in peace and harmony!

Prop 13 sucks for donor counties like Orange. Orange County was getting about 7% of what it paid into the state in property taxes. The great state Senator Lou Correa has been able to modify that return somewhat. I can't find the figures right now but it is better than before. Of course the BOS has decided to not share any of these funds with my agency so we are on our own